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Fiscal Policy after the Financial Crisis$
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Alberto Alesina and Francesco Giavazzi

Print publication date: 2013

Print ISBN-13: 9780226018447

Published to Chicago Scholarship Online: September 2013

DOI: 10.7208/chicago/9780226018584.001.0001

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Fiscal Multipliers in Recession and Expansion

Fiscal Multipliers in Recession and Expansion

(p.63) Chapter 2 Fiscal Multipliers in Recession and Expansion
Fiscal Policy after the Financial Crisis

Alan J. Auerbach

Yuriy Gorodnichenko

University of Chicago Press

This chapter examines the size of fiscal multipliers amidst an economic recession, first estimating multipliers for a large number of Organization for Economic Cooperation and Development (OECD) countries. Second, it adapts the authors' previous methodology to use direct projections rather than the standard structural vector autoregression (SVAR) approach to estimate multipliers, to economize on degrees of freedom, and to relax the assumptions on impulse response functions imposed by the SVAR method. Third, the chapter estimates responses not only of output but also of other macroeconomic aggregates. It is shown that multipliers of government purchases are larger in a recession, and that controlling for real-time predictions of government purchases tends to increase the estimated multipliers of government spending in recession. A commentary is also included at the end of the chapter.

Keywords:   fiscal policy, OECD, structural vector autoregression, multipliers, government purchases, government spending

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